25 April 2024

U.S. Bonds Lifted by ECB Bond Buying Program

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U.S. and eurozone government bonds rallied broadly on Thursday, sending yields tumbling, after the European Central Bank made a historic step to buy government bonds in a bid to curb threats of deflation. The ECB joins the ranks of the Federal Reserve and other major central banks tapping the unconventional monetary policy tool, known as quantitative easing, following the 2008 financial crisis. The money largess has sent the value of stocks and bonds soaring over the past few years.

Stocks in Europe strengthened along with bonds, the latest sign loose monetary policy remains a support for financial markets at a time when investors are grappling with an uncertain global growth outlook. The U.S. economy has been the sole bright spot and the Federal Reserve is the only major central bank that has rolled back economic stimulus.

ECB President Mario Draghi announced on Thursday that the ECB plans to buy a total of €60 billion ($69 billion) a month in assets including government bonds, debt securities issued by European institutions and private-sector bonds. The ECB plans to buy bonds maturing from two years to 30 years, a broader range than many analysts have expected.

U.S. bonds offer much higher yields compared with their counterparts in Germany, France and other major developed countries, drawing investors seeking relative value in liquid bond markets. In recent trade, the yield on the benchmark 10-year U.S. Treasury note was 1.830%, down from 1.941% right before the ECB announcement, according to Tradeweb. In Germany, the yield on the 10-year bond fell to 0.39%. The yield on the 10-year bond in Spain dropped to 1.409% and the yield on the 10-year bond in Italy declined to 1.571%.

The price strength in Treasury bonds Thursday was a stunning turnaround from the selloff that had dominated the bond market over the past session. Bond prices had tumbled earlier, and the 10-year note’s yield jumped to 1.95%, as investors booked profits from a recent rally that had sent many bond yields to historical or near historical lows. Hopes the ECB would launch a bond buying program had been one of the main contributors to lower bond yields over the past few months.

U.S. government bonds have rallied this month, driven by an uncertain global growth outlook and deflation concerns in Europe amid slumping oil prices since June. Deflation, or a persistent fall in consumer prices, boosts the value of fixed-income assets.

Click here to access the full article on The Wall Street Journal. 

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